SUBRAMONIAN POTI J. - These are appeals filed by CIT, Kerala-I, Ernakulam, against a common order passed by the Income-tax Appellate Tribunal, Cochin Bench. The appeals before the Tribunal concerned the same matter but were by different parties. Those appeals were against the one and the same order of the IAC of Income-tax, Acquisition Range, Ernakulam. Since the Tribunal purported to dispose of those six appeals by the common order the Commissioner has filed six appeals in this court.
The competent authority under the I.T. Act, passed an order for the acquisition of an immovable property under s. 269F of the I.T. Act, 1961. It was the case of the competent authority that the immovable property in respect of which the acquisition proceedings were commenced was transferred for consideration which was less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties had not been duly stated in the instrument of transfer and further that such fair market value of the property exceeded the apparent consideration by more than fifteen per cent. of such apparent consideration. The deed of transfer was executed by the transferors in favour of four transferees. Since the two transferors and the four transferees objected to the order of the IAC each one of them filed an appeal. The transfer was of 16 cents of vacant land in survey No. 592/2 of Ernakulam village. This property had been purchased in 1965 by the transferors jointly for a consideration of Rs. 33,000. To make the property purchased regular in shape, they had purchased a further extent of 0.675 square links in survey No. 592/3 on July 16, 1973, so much so the total extent of the land became 16.675 cents. It was the said extent that was sold by them to the four persons. Though the total extent under the documents taken by the joint transferors was 16.675 cents, on measurement it was found to be only 16.268 cents. Out of this 5.418 cents in A schedule, 3.6 cents each in B and C schedule and 3.650 cents in D schedule were sold to four persons by the joint transferors under one instrument of transfer, that being document No. 1694/73 executed on August 16, 1973. Though the total extent thus conveyed under the instrument of transfer was 16.268 cents distinct areas described in separate schedules were sold to each one of the four transferees for independent consideration. The four purchasers were brothers. Even before the purchase was effected there was an agreement of sale and it was pursuant to the agreement of sale that the purchase was effected. An advance of Rs. 5,000 had been paid by one of the four purchasers.
The competent authority initiated proceedings under s. 269 of the I.T. Act for acquisition of the property covered by the transfers. Such proceedings were initiated in respect of the entire 16.268 square links of land as one proceeding and not four different proceedings. In accordance with s. 269D(2) the competent authority shall cause a notice to be served on the transferor, the transferor, the person in occupation of the property and on every person known to be interested and the competent authority shall also cause notice to be published in its officer and in the locality in which the property is situate. Under s. 269D(1) such notice is to be published in the Official Gazette too. The immovable property mentioned in such notices and in the Gazette was not described as four distinct plots of land covered by A to D schedules in the sale deed but one block of land measuring 16.268 cents. Parties objected to the proposal for acquisition and after hearing the parties the competent authority overruled the objection. He was evidently satisfied that the immovable property to which the proceedings related was of a fair market value exceeding twenty-five thousand rupees, that the fair market value exceeded the apparent consideration by more than fifteen per cent. and that the consideration agreed to was not the consideration shown in the document of transfer. In this view the competent authority passed on order for acquisition under s. 269F of the Act. The two joint transferors and the four purchasers filed independent appeals under s. 269G of the Act before the Tribunal. The Appellate Tribunal allowed these appeals findings that there were four sale transactions reflected in the deed of transfer. It also found that the immovable property covered by each particular sale transaction had to be taken into account independently for the purpose of proceedings under s. 269 of the Act and the question as to whether the fair market value of the property exceeded Rs. 25,000 had to be determined in respect of property covered by each of the four sales. The competent authority having estimated the fair market value only for the entire parcel of land as one unit there was no investigation and recording of finding as to whether each of the plots in the four schedules exceeded in value Rs. 25,000. In this view the Tribunal directed the case to be considered afresh by the competent authority in the light of its findings.
Under s. 269H of the Act an appeal lies to the High Court on any question of law against the decision of the Appellate Tribunal under s. 269G. Accordingly these appeals have been filed by the CIT.
The question of law this court is called upon to decided in these appeals is whether, in the facts and circumstances of the case, where a transfer is seen to be effected of different items of properties in favour of four persons under a deed of transfer, is the transfer to be taken to be not in favour of four different persons but in favour of an association of persons or body of individuals and consequently whether s. 269C of the Act would apply. Section 269C of the Act runs thus :
'269C. (1) Where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty-five thousand rupees has been transferred by a person (hereinafter in this Chapter referred to as the transferor) to another perso. (hereinafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of -
(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer; or
(b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax act, 1922 (11 of 1922), or this Act or the Wealth-tax Act, 1957(27 of 1957),
the competent authority may, subjects to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter :
Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so :
Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration.
(2) In any proceedings under this Chapter in respect of any immovable property -
(a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer;
(b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1).'
In this case, the property of 16.268 cents covered by the sale deed of August 17, 1973, belonged to be two transferors jointly. They did not sell the whole property to four persons jointly. If they had sold such properties jointly to the four persons, each one of the four would have had right in the entire 16.268 cents, though jointly with the others. Separate portions of the property were sold to the four purchasers and by such sales the entire property was exhausted. Each one of the four transferees had absolute right to the property transferred to him and in the property transferred to one the other transferred had no right. In other words, the right of each one of the transferees to the plot transferred to him was absolute. It was as if four sale deeds had been executed for four different portions of a compact plot and four purchasers took the respective portions transferred to them with absolute right over such portions. We may notice here that there is no case that the transfers in favour of the four purchasers or any of them was sham or benami for the others too. The reality of the transfers is not in dispute. Therefore, the position was the same as that where four transfer deed had been executed, one in regard to A schedule, one is regard to B schedule, one in regard to C schedule and one in regard to D schedule. In the event of such independent transfer deeds, the question that has now arisen might perhaps not have arisen at all. But what is contended for, despite this, is that taking into account the circumstances and facts and the evidence in the case, the four transferees constitute an association of persons and as such the sale deed must be taken to have been by the transferors in favour of an association of persons. An association of persons is a person for the purpose of the Act. What is required to attract s. 269C is only a transfer by a person referred to as transferor to another person referred to as transferee. If an association of persons could fall within the definition of a person under the Act - it so falls within the definition in s. 2(31) of the Act - then if it is shown that though four individuals took four transfers the transfer was to an association of persons it would be one to which s. 269C will be attracted. It is further contended that if for any reason the circumstances are not sufficient to read the combination of the four transferees as an 'association of persons' their combination would be sufficient to bring them within the purview of the term 'body of individuals' which again falls within the definition of 'person' in s. 2(31) of the I.T. Act, 1961, though that was not the case under the Indian I.T. Act, 1922.
On the meaning of the term 'association of persons', a term which is not defined in the I.T. Act, courts have occasion to speak and it may now be taken as well settled that what was said by the High Court of Calcutta in B. N. Elias, In re : [1935]3ITR408(Cal) is the proper definition of that term. Chief Justice Sir Harold Derbyshire, speaking for the Bench, said in that case thus (p. 415) :
'Those words association of individulas have to be construed in their plain, ordinary meaning. There is no difficulty about the word individulas. Associate means, according to the Oxford Dictionary, to join in common purpose, or to joint in an action. Did these individuals join in a common purpose, or common action, thereby becoming an association of individulas In my view, they did.'
This definition was adopted by the Supreme Court as reflecting the proper meaning of the term. In CIT v. Indira Balkrishna : [1960]39ITR546(SC) the Supreme Court said thus (p. 551) :
'It is enough for our purpose to refer to three decisions : In re B. N. Elias : [1935]3ITR408(Cal) , Commissioner of Income-tax v. Laxmidas Devidas : [1937]5ITR584(Bom) and In re Dwarakanath Harischandra Pitale : [1937]5ITR716(Bom) . In In re B. N. Elias : [1935]3ITR408(Cal) Derbyshire C.J. rightly pointed out that the word associate means, according to the Oxford Dictionary, to join in common purpose, or to join in an action. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont C.J. in Commissioner of Income-tax v. Lakshmidas Devidas : [1937]5ITR584(Bom) , and also in In re Dwarakanath Harishchandra Pitale : [1937]5ITR716(Bom) . In In re B. N. Elias : [1935]3ITR408(Cal) Costello J. put the test in more forceful language. He said : It may well be that the intention of the Legislature was to hit combination of individuals who were engaged together in some joint enterprise but did not in law constitute partnership........ When we find.......that there is a combination of persons formed for the promotion of a joint enterprise......then I think no difficulty arises whatever in the way of saying that.......these persons did constitute an association.....
We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of section 3 of the Income-tax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.'
The Supreme Court, again considering the term 'association of persons', in the decision in G. Murugesan & Brothers v. CIT : [1973]88ITR432(SC) said thus :
'The expression association of persons is not a term of art. That expression has come up for consideration before this court in more than one case. In Commissioner of Income-tax v. Indira Balkrishna : [1960]39ITR546(SC) this court, after referring to the various judgments, observed thus :
It is enough for our purpose to refer to three decisions : In re B. N. Elias : [1935]3ITR408(Cal) , Commissioner of Income-tax, v. Laxmidas Devidas : [1937]5ITR584(Bom) and In re Dwarakanath Harischandra Pitale : [1937]5ITR716(Bom) . In In re B. N. Elias : [1935]3ITR408(Cal) Derbyshire C.J. rightly pointed out that the word 'associate' means, according to the Oxford Dictionary, 'to join in common purpose, or to join in an action'. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section, which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont C.J. in Commissioner of Income-tax v. Laxmidas Devidas : [1937]5ITR584(Bom) , and also in In re Dwarakanath Harischandra Pitale : [1937]5ITR716(Bom) . In In re B. N. Elias : [1935]3ITR408(Cal) Costello J. put the test in more forceful language. He said : 'It may well be that the intention of the legislature was to hit combination of individuals who were engaged together in some joint enterprise but did not in law constitute partnerships......When we find.....that there is a combination of persons formed for the promotion of a joint enterprise.....then I think no difficulty arises whatever in the way of saying that these persons did constitute an association.......'.
We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of section 3 of the Income-tax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.
In the course of that judgment, this court also observed [CIT v. Indira Balkrishna : [1960]39ITR546(SC) ] :
With regard to the shares, dividends and interest on deposits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the widows performed in respect thereof which produced or helped to produce income.
For forming an association of persons, the members of the association must join together for the purpose of producing an income. An association of person can be formed only when two or more individulas voluntarily combine together for a certain purpose. Hence volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an association of persons if his lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an association of persons from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an association of persons.'
It is evident from the discussion in that case that joining together by the members of the association for the purpose of producing income is requisite for formation of an association of persons. Such coming together or combining is a consensual act and depends upon the volition of the parties. Merely because certain persons are constituted joint owners, such as by inheriting the property of a person on his death, they do not become an association of persons, for, in that event, the jointness is the result of operation of law and not of volition of parties.
In the case before the Supreme Court in CGT. v. R. Valsala Amma : [1971]82ITR828(SC) two ladies who obtained properties jointly under a will and had not divided some of those properties executed a gift of those to their brother under one deed of gift. It was contended that the ladies may be held to constitute as an association of persons or a body of individuals. The GTO assessed them as an association. The AAC upheld the assessment as an assessment on a body of individuals. The Tribunal came to the conclusion that the assessment in question was a valid assessment and it was an assessment on an association. The High Court took the view that the two ladies could be assessed only as individulas. Section 3 of the G.T. Act which is the charging section charges to tax gifts made by a person during the previous year and it was contended that the person who made the gift in the case was an association of persons constituted by two ladies or a body of individulas constituted by two ladies. Considering this question the Supreme Court said thus (p. 830) :
'Now the question is in what capacity the gift was made by the assessee. Did they do it as an association or as a body of individulas or as individuals. The property received by the assessees under the will of their mother was admittedly received by them as co-tenants. Each one of them had half share in that property. The question whether they divided that property or not is not a material question. In law each one of them had half the right in the property that they gifted to their brother. They were holding that property as tenants-in-common and not as joint tenants. Hence they made the gifts as tenants-in-common and not as joint tenants. Each one must be held to have made a gift of her share of the property though the gift is made through one single document. It is surprising that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal should have ever though that the gift in question was by an association or by a body of individuals. The Gift-tax Act did not change the general law relating to the rights to property. It merely sought to tax a gift of the property owned by a person. As mentioned earlier the property with which we are concerned in this case is a property owned by two persons as tenant-in-common, each one having a definite share.
In our opinion, the High Court was absolutely right in answering the question referred to it in favour of the assessee. Civil Appeal No. 1436 (NT)/71 accordingly fails and the same is dismissed with costs.'
The joint ownership and joint assessment by heirs of a deceased will not make them an association of persons was the view expressed in Commr. of Agrl. I.T. v. Raja Ratan Gopal : [1966]59ITR728(SC) . Where four persons succeeded to the estate as co-shares and each one of them was entitled to 1/4th share in income from the estate they did not form a unit for the promotion of any joint enterprise to each income, profits or gains and the collection of the entire income from the estate by one of the sharers or even by a common employee will not make that income an income from a joint venture. This is what has been noticed by the Supreme Court in Commr. of agrl. I.T. v. Raja Ratan Gopal : [1966]59ITR728(SC) . Each one of the sharers in that case was found to have obtained his income as an individual and not as an association of individulas. This court in an earlier decision in Choodamani v. CIT : [1959]35ITR676(Ker) had also expressed the same view as to the scope of the term 'association of persons.'
According to the revenue the facts which are relevant for determining whether the four transferees constitute an association, of persons or at least a body of individuals are that, (1) the four transferees are brothers, (2) though the transfer was of distinct plots to the four transferees there was only one agreement preceding the transfer, (3) one of the brothers alone paid the advance, (4) only one deed of sale was executed, (5) after the purchase the entire property was levelled up and pile driving commenced before the purchase was completed and (6) such pile driving was only for construction of one building.
We are not at the question here whether the property purchased by the four brothers were put to common use in a joint venture for deriving income as an association of persons. Possibly if the income out of the venture they embarked upon later is sought to be assessed as that of an association of persons the question may become relevant. We are at the question whether the purchase is by an association of persons and not whether an association of persons came into existence after the purchase to run a joint venture. We have already indicated the elements required to find a combination styled 'association of persons'. Some element of volition is necessary even for 'a body of individuals'. What exactly would be the distinction between 'a body of individuals' and 'an association of persons' is a matter on which we need not speak further, for, that may not be relevant for the purpose of this case. A body of individuals is different from individuals and if they are treated as a person because they are a 'body' there must be jointness by volition. When four persons take sale deeds for different plots of land from the same vendor and when each one of the transferees get absolute title to the property transferred to him there is no jointness in the purchase of the transferees. The fact that they may make or put to common use the property purchased by them is a factor which will have no bearing on the purchase itself. We are concerned here with the purchase only and that purchase is conceded to be in favour of four persons of four different properties for different considerations. In 'A' schedule the first of the transferees alone has right and the three others have no right. So is the case with the other three schedules. If so, there is no conveyance of the property to all the four persons. Had the sales been effected by four different instruments it is agreed that the case now urged by the revenue may not have arisen. It would make no difference merely because the four sales are covered by one instrument. This is what has been said by the Tribunal in its order. The section, as we have already pointed out, speaks of a transfer by a person to another person. If the transfer in this case is not by the two joint transferors in favour of the four purchasers of the entire property so that each one of them got rights to that property under the transfer, s. 269C will have no application. This is what the Tribunal has said. We are in agreement with the Tribunal. In this view the appeals are to be dismissed. We do so. No costs.